Zombie Law?

For a while now, I had been fearing that the Communication was a born dead document.

In reading last week the GC’s ruling in Tomra v. Commission, I got even more troubled. Would the Guidance Communication be the first “zombie” legal instrument ever released by the Commission? A zombie legal instrument is a document that is dead (i.e. overruled), but that does not know it’s dead (i.e. still presented as the law as it stands). For more on zombies in the field of economics, see here.

Clearly, there are a slew of killing statements in the GC’s judgment. Look closely:

§206 suggests – at least implicitly – that consumer harm is one of the several goals pursued by Article 102 TFEU in parallel to the protection of competitors. According to the GC, protecting competitors would constitute a sufficient ground to enforce Article 102 TFEU. This is at odds with the Guidance Communication which suggests that protecting competitors is not, in and of itself, a stand-alone goal of Article 102 TFEU. In the Guidance Communication, Article 102 only protects competitors to the extent that consumers might be harmed;

§241 says that there can be an abuse as long as a rival is deprived of the ability to compete “for the entire market and not just for part of it”. In other words, even de minimis foreclosure is arguably caught under the concept of abuse. No matter what, a dominant company cannot tie a single customer on the market. This not only inconsistent with the Guidance effects-based ethos, but also with the Discussion paper of 2005 which had elevated the concept of the “tied market share” as a key decisional criterion. It is also at odds with the Commission’s decisional practice notably in Distrigas;

§258 weakens the relevance of the so-called “suction effect” test, in saying that “the fact that the retroactive rebate schemes oblige competitors to ask negative prices from the applicants’ customers benefiting from rebates cannot be regarded as one of the fundamental bases of the contested decision in showing that retroactive rebate schemes are capable of having anti-competitive effects“.

With this in mind, I was a little reassured by Miguel de la Mano‘s (DG COMP) presentation at our last GCLC lunch talk on Friday. In essence, Miguel considers that the GC’s ruling is fully congruent with the Guidance Communication. In contrast, Alan Ryan (Freshfields) finds a number of flaws in the judgment (and has appealed it before the ECJ). See slides below for more.

My take: a dominant firm does not necessarily foreclose the entire market through loyalty-inducing practices. It all boils down to assessing the share of the dominant firm’s customers that is subject to the impugned practice (e.g., a dominant firm may apply a single branding commitment to only 10% of the relevant market). Against this background, foreclosure should only be presumed when the dominant firm applies the loyalty-inducing practice to its entire customer base.

And a proposal: not unlike under Article 101 TFEU, the Court and the Commission should recognize that dominant firms can benefit from safe harbours. In light of the rules on vertical agreements, as long as the tied market share < 30%, Article 102 TFEU should be deemed inapplicable.

[…] market is wholly unfortunate. It is first non-sensical from an economic standpoint. But as we wrote here, it is also inconsistent with the approach followed in other areas of competition law . A similar […]